CARBO Ceramics Inc. recently reported a generally accepted accounting principles (GAAP) net loss of $20 million, or a loss of $0.81 per share, on revenues of $20.2 million for the quarter that ended September 30, 2016. The GAAP net loss includes $8 million of after-tax costs associated with slowing and idling production.

“We raised approximately $46 million through our ATM equity offering program during the quarter, significantly strengthening our balance sheet with an ending quarterly cash balance of $108 million,” said Gary Kolstad, CEO. “As we continue to work toward our interim goal of achieving cash neutral operations, we are pushing forward on two fronts. The first is continuing to drive costs out of the business, including operational costs, supplier costs, and cancellation and deferrals on rail car leases. The second is looking broadly at how we can grow our businesses in both the oilfield and industrial markets. This includes pursuing other manufacturing opportunities for our excess ceramic plant capacity, generating new product sales for Falcon outside of the oilfield, growing our industrial business and recently restarting our sand plant. We are utilizing the great technology, people, and manufacturing strengths of the company to identify and capture new growth opportunities, which, if achieved, will generate cash flow and help offset the severe cyclicality of the oilfield.

“The oilfield operating environment remains challenging as E&P operators continue to focus on low-cost completions while limiting spend on production enhancement technologies. Third quarter ceramic pricing and sales volumes were lower than expected. Average sales price for ceramic proppants were impacted by product mix and continued fire sales of low-quality Chinese ceramic proppants priced at a level where we chose not to participate. Volumes and price were also negatively impacted by a couple of clients experiencing operational delays. Delays such as these currently have a disproportionately large impact given our current low level of ceramic sales volumes.

“KRYPTOSPHERE HD is seeing continued success in the lower tertiary formation of the Gulf of Mexico with a new client during the quarter. We believe that the incredible strength and conductivity of KRYPTOSPHERE HD make it the leading choice to address the toughest well conditions in the world. We also continue to gain new clients using SCALEGUARD, given its great track record of preventing scale and lowering lease operating expense.”  

Revenues for the third quarter of 2016 decreased 73%, or $55.6 million, compared to the same period in 2015. The decrease was primarily attributable to a lower overall industry activity level, a 71% decrease in ceramic proppant sales volumes caused by continued movement to lowest-cost completions, and associated reductions in the average proppant selling prices.

Operating loss for the third quarter of 2016 was $30.5 million as compared to $19.2 million in the same period of 2015, primarily due to revenue decline, but was partially offset by cost cutting measures implemented beginning in early 2015. Net loss for the third quarter of 2016 was $20 million, compared to $13.9 million in the same period in 2015.

SCALEGUARD®, a proppant-delivered scale-inhibiting technology, has an expanding client base across North America. Some SCALEGUARD wells have been on production for approximately two years without a workover or well intervention due to scaling. A single scale inhibition treatment with SCALEGUARD reportedly can significantly increase production for the life of the well and dramatically reduce lease operating expense.

The Fracture Evaluation platform reportedly continues to deliver direct measurements of fracture height through CARBONRT® technology. CARBONRT allowed two Middle East-Asia clients to optimize their completion designs by maximizing proppant placement without growing into water bearing zones in their respective formations.

According to newly released data from the Ohio Department of Natural Resources, the top-producing well in the Utica shale play produced 1.62 billion cu ft of natural gas during the second quarter of 2016. This well was completed with HYDROPROP® and ECONOPROP® ceramic proppant.

CARBO Industrial Technologies continues to gain new clients with the ACCUCAST® products designed for the foundry industry. Working in collaboration with a client, ACCUCAST was qualified for an intricate core mold used in the production of a military component with extremely tight tolerances. This foundry client now intends to use the ACCUCAST beads for a broader range of casting applications based on the success of this project.

During the quarter, the company sold 3,405,709 shares of its common stock at an average price of $13.69 per share under its at-the-market equity offering program. Net proceeds to the company totaled $45.6 million.

“We believe the industry will see a gradual recovery in activity, and while we believe there will be a return to value-added oilfield technology products such as ceramic proppants by E&P operators, it may be slow to materialize and ultimately depend upon a number of industry factors,” said Kolstad. “Current commodity prices are driving many E&P operators to seek out low-cost completions. However, we expect fourth quarter 2016 ceramic sales volumes to increase sequentially, as we expect delayed sales from the third quarter to materialize in the fourth quarter.

“On the oilfield technology front, we were pleased to gain a new client for KRYPTOSPHERE HD during the third quarter, and we anticipate additional growth for technology sales over the coming quarters. We were also pleased to have gained new clients with our SCALEGUARD technology. We remain committed to expanding our oilfield technologies during this downturn.

“We have a long history of selling to the industrial market. Historically, industrial sales have been a small percentage of our overall business. However, we believe we can grow this business at double-digit rates through the additional resources we are deploying and by leveraging our technology to develop new industrial product offerings.

“Our industrial products target performance enhancement for the end user by increasing process efficiency, improving end-product quality and reducing operating costs. The overall industrial product market for ceramic media is substantial; however, capturing a larger portion of this market will take time. While the initial sales cycle is typically longer than the oilfield sales cycle, the resulting commercial relationship is typically long-term in nature. We believe the efficiencies of our plants and the quality of our products will allow us to grow our industrial technologies revenue over the coming quarters and contribute to generating positive cash flow.

“By focusing on these operational initiatives, we are targeting achieving a cash neutral exit rate by year end 2017. We also continue to explore certain asset and technology monetization to further bolster our cash reserves.”  

For more information, visit www.carboceramics.com.